Foreign-Exchange Brokers Are Going Bankrupt In The Swiss Franc's Surge

Foreign-exchange brokers who had relied on the stability of the Swiss franc, which until Wednesday was pegged to the euro, were taken by surprise when the Swiss National Bank abolished its controls, and millions of dollars were lost at firms around the world.

The recent move on the Swiss franc caused by the Swiss National Bank's unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity. This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm today, 16/01/15, that it has entered into insolvency.

Brokers can go out of business on big moves like this because they give their clients access to leverage. For example, an account holder might have $1,000 with the broker but hold positions worth $10,000 in currency markets. That doesn't matter so long as the holder's losses are covered by the initial amount. But Wednesday, for at least two brokers, that wasn't the case for a lot of those clients.

This isn't likely to be the last of the fallout from the colossal move, which was almost unheard of among the most widely traded currencies of advanced economies. Here's what Thursday's fluctuation looked like:

Investing.com, Business Insider

As of 11:30 a.m. GMT (6:30 a.m. ET) the franc is looking more settled, down 3.9% at 1.016 against the euro.